Corporate Governance

Essentially, the aim of corporate governance is to ensure that companies that are not managed by their owners are run with the owners' best interests at heart.

Broad ownership can lead to conflicts of interest

Broad ownership of stock exchange listed companies increases the risk that companies will not be managed entirely in the best interests of their shareholders. Boards and corporate executives may have different priorities when it comes to issues like earnings, risk, remunerations and financial structures.

This risk is even greater in companies with no strong major shareholder, but exists to a greater or lesser extent in all companies in which a significant proportion of the shareholders are not active in the governance of the company.

Good corporate governance reduces this risk

To reduce the risk of such conflicts of interest, different kinds of corporate governance rules and guidelines have been introduced as a complement to legislation.

In many countries in Europe and elsewhere, this has taken the form of corporate governance codes, whereas the development in the United States has been more toward legislation and binding stock exchange regulations. A number of international organisations, such as the OECD and the EU, have also issued guidelines and recommendations concerning corporate governance.